One of my biggest positions over the last ten or eleven months has been the insurance company Aviva (AV.). I first bought the stock because I thought it was cheap but in August I realised that my main business rationale was now that its new CEO Amanda Blanc smartly was focusing on simplifying the business. Since then there have been some Asian sales but an announcement now that it is exiting its French business is a very helpful step.
First, it is an unsurprisingly material bit of money raising with Aéma Groupe paying €3.2 billion, which is a decent sum of cash that is expected to be received by the end of the year. Will there be extra dividends/repayments to investors at some point in the next year? Second, it highlights the creation of value. Back in August I observed that Aviva was a cheap business and even with the 30% share price rise since then, I continue to believe next week's full year numbers will justify a fair value above four quid. Good to see the stock just below 380p now. Still a buy/strong hold for me.
And what about latest numbers from HSBC (HSBA)? Whilst the shares have finally had a good run over recent weeks, they are down as I write mainly because structural challenges remain very clear. Whilst profits were down in 2020 (as is the case with all banks for obvious reasons), an announcement that a $0.15 per share dividend would be paid did not particularly excite anyone. Yes, a 2%+ dividend yield is attractive if you remember my Barclays (BARC) update last week, but the latter as I put it 'is still cheap if the UK economy and the global market continue to improve in 2021'. HSBC by contrast has its major selling point as Chinese potential growth.
Now China has a bunch of obvious attractions for this decade, but there are a lot of growth challenges too, especially for a company whose name clearly points to its historic Hong Kong focus. Anyhow, the main aim is to get China/Asia lending to more than 50% of the book over the next couple of years. So if you are happy with this shift then invest away. Surely at some point influence will shift even further out of London. Shorter-term though any pan-European improvement will have less impact, reflecting its lower sales weighting. Whilst the UK will continue, the view on France is described as 'continuing with the strategic review...although no decision has yet been made'. Yawn. For HSBC it is time to start moving on. Growth may be described as 'Reenergise our culture to succeed with purpose...Bring our values to life, everywhere...Adopt future ways of working', but it is far too much talk and far too little action. The contrast with the still newish CEO at Aviva is very marked, hence I know which one I would rather own today. Meanwhile in pan-Chinese bank lending there are plenty of alternatives out there for HSBC to be sluggish compared with. My guess is that HSBC will eventually move forward but I am not going to hold my breath.
Filed under: Aviva, Zoetic, Bitcoin, AIM, Gooch & Housego, Reckitt Benckiser
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